European Court of Auditors International Conference on Financing of Decommissioning, OECD Stockholm, Sweden 20-21 September 2016 Session 3: Risk Management The European Court of Auditors Evaluations of the Implementation of EU Nuclear Decommissioning Assistance Programmes Presentation by Pekka Ulander

21 September 2016

Page 1

Session 3 - Risk Management: The European Court of Auditors Evaluations of the Implementation of EU Nuclear Decommissioning Assistance Programmes • Introduction What is the European Court of Auditors (ECA)? What we do? • EU Nuclear Decommissioning Assistance Programmes Where are the Nuclear Power Plants under this Programme? Governance structure Risk environment • ECA’s Audit Question, Observations, Conclusions and Recommendations • Questions and Answers • • Disclaimer: The audits in this presentation in no way examined the security or safety of the installations, nor the case for or against

nuclear energy, nor drew conclusions on the appropriate energy supply mix in the EU. Slide2

EU institutions

Executive

Development impetus

Political direction

Monetary policy and

supervision

External audit

Legislative

European Parliament

Judiciary

Court of Justice of the EU

Slide 3

Mission as EU’s independent external auditor Carries out the audit of EU finance Contributes to improving EU financial management Promotes accountability and transparency Acts as the independent guardian of the financial interests of the citizens of the Union

Tasks Examines all revenue and expenditure in the accounts of the EU and its agencies and decentralised bodies Assesses whether financial management has been sound Provides a Statement of Assurance on the reliability of the accounts and the legality and regularity of the transactions underlying them Delivers opinions at the request of one of the EU institutions and reviews on its own initiative Assists the European Parliament and the Council by providing the audit reports used in the discharge procedure Draws up reports and opinions that have no binding force but are of help to those managing EU funds Has no judicial powers

The audit approach International auditing standards Audits are carried out in line with international standards on audit and quality control The ECA takes an active part in the development of international standards Statement of assurance Examination of supervisory and control systems intended to prevent or detect and correct errors of legality and regularity Detailed check of a sample of transactions (revenue and payments) When systems are tested and found to be reliable, fewer transactions can be audited to arrive at a robust conclusion Performance audit Variety of audit methodologies is used to assess management and monitoring systems and information Criteria are derived from legislation and the principles of sound financial management The ECA selects audit subjects which are likely to yield high impact in terms of identifying potential improvements in the management of EU funds

* The ECA’s role and tasks are set out in articles 285, 286 and 287 of the Treaty on the Functioning of the EU (TFEU)

Slide 4

Types of audits

Financial audit Reliability of the accounts

Compliance audit Legality and regularity of transactions

Performance audit Soundness of financial management

Statement of assurance (annual reports)

Selected audits (special reports)

Obtain evidence on the extent to which transactions, assets and liabilities have been completely, correctly and accurately entered in the accounting records and presented in the financial statements

Obtain evidence on the extent to which EU revenue and spending operations have been carried out in accordance with contractual and legal requirements and are correctly and accurately calculated

Obtain evidence on the extent to which EU funds have been used economically, efficiently and effectively, and provide value for money

Slide 5

Nuclear Decommissioning Assistance Programmes - General

Slide 6

• The Chernobyl accident in 1986 and its cross-border impact highlighted the global importance of nuclear safety. This event generated broad concern with regard to the operation of non-upgradeable nuclear reactors in Central and Eastern Europe, first generation VVER-440 and RBMK-type reactors. Hence, with a view to increasing nuclear safety, the international community, and the European Union in particular, decided, from the early 1990s, to provide various forms of financial assistance to several Countries: Bulgaria, Czech Republic, Hungary, Lithuania, Romania, Slovakia, Slovenia, Armenia, Kazakhstan, Russia and Ukraine.

- Lithuania, Bulgaria and Slovakia joining the European Union (EU), the closure and subsequent decommissioning of eight Soviet-designed, first generation nuclear reactors at three nuclear power plant sites a condition for their accession.

- The EU launched the nuclear decommissioning assistance programmes (NDAP) to help them. The programmes provide financial assistance for:

- decommissioning and dismantling projects, waste management projects such as the design and construction of radioactive waste treatment plants, landfills for very low-level radioactive waste (VLLW) and near surface repositories for final disposal of short-lived low- and intermediate level radioactive waste (LILW-SL) - energy sector projects to mitigate the consequences of shutting down reactors such as having to replace lost electricity generation capacity - projects to mitigate social consequences such as lost employment.

Total financial support given to the programmes between 1999 and 2020 is foreseen to be €3816 million.

Ignalina, Lithuania1 818 million euro

48 %

Kozloduy, Bulgaria1 143 million euro

30 %

Bohunice, Slovakia849 million euro

22 %

Nuclear Power Plants in the EU, Status in January 2016

Slide 7

Czech Republic

Shut down -

Operational 6

Under construction -

Total 6

Finland

Shut down -

Operational 4

Under construction 1

Total 5

Lithuania

Shut down 2

Operational -

Under construction -

Total 2

Sweden

Shut down 3

Operational 10

Under construction -

Total 13

Slovakia

Shut down 3

Operational 4

Under construction 2

Total 9

Romania

Shut down -

Operational 2

Under construction -

Total 2 Bulgaria

Shut down 4

Operational 2

Under construction - Total 6

Italy

Shut down 4

Operational -

Under construction -

Total 4

Spain

Shut down 3

Operational 7

Under construction -

Total 10 Hungary

Shut down -

Operational 4

Under construction -

Total 4

France

Shut down 12

Operational 58

Under construction 1

Total 71

Slovenia (shared with Croatia)

Shut down - Operational 1

Under construction -

Total 1

Status

Shut down 91

Operational 129

Under construction 4

Total 224

United Kingdom

Shut down 30

Operational 15

Under construction -

Total 45

Netherlands

Shut down 1

Operational 1

Under construction - Total 2

Belgium

Shut down 1

Operational 7

Under construction -

Total 8

Germany

Shut down 28

Operational 8

Under construction -

Total 36

NDAP Governance and Regulatory Environment - legal basis

Slide 8

Ignalina, Lithuania Kozloduy, Bulgaria Bohunice, Slovakia

Pre-accession Council Regulation (EEC) No 3906/1989 of 18 December 1989

Council Regulation (EC) No 1266/1999 of 21 June 1999 (PHARE Programme)

Accession Treaties

Protocol No 4 on the Ignalina Nuclear Power Plant in Lithuania, attached to the Act concerning the conditions of accession of the Republic of Lithuania and the adjustments to the Treaties on which the European Union is founded (OJ L 236, 23.9.2003, p.944-945

Act concerning the conditions of accession of the Republic of Bulgaria and Romania (OJ L 157, 21.6.2005, p. 203)

Protocol No 9 of the Act concerning the conditions of accession of the Slovak Republic and the adjustments to the Treaties on which the European Union is founded. (Bohunice V1 NPP) (OJ L 236, 23.9.2003, p.954)

Post-accession

Council Regulation (EC) No 1990/2006 of 21 December 2006 on the implementation of Protocol No 4 on the Ignalina NPP

Council Regulation (Euratom) No 647/2010 of 13 July 2010

Council Regulation (Euratom) No 549/2007 of 14 May 2007 on the implementation of Protocol No 9 on Unit 1 and Unit 2 of the Bohunice V1 nuclear power plant in Slovakia to the Act concerning the conditions of accession to the European Union of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia

Council Regulation (Euratom) No 1369/2013 of 13 December 2013 on Union support for the nuclear decommissioning assistance programme in Lithuania, and repealing Regulation (EC) No 1990/2006

Council Regulation (Euratom) No 1368/2013 of 13 December 2013 on Union support for the nuclear decommissioning assistance programmes in Bulgaria and Slovakia and repealing Regulation (Euratom) No 549/2007 and (Euratom) No 647/2010

Slide 9

• Main Actors: • European Commission

• DG ENER • Member States

• Authorities • NPPs

• EBRD • IIDSF • BIDSF • KIDSF

• CPMA

Slide 10

NDAP Governance and Regulatory Environment – Main Actors

NDAP ,Decommissioning Risk Environment

Slide 11

Financial

Environment

Political

Legal

Project Management Project

Interface

Natural Disaster Safety

Radiological

Critical path

Physical

Licencing

Terror

Delay and cost overrun

Human Error

Security

Predisposal Waste

Management

SNF for Predisposal

Management

SNF for future use

Management

Final repository

Processing, Storage, Transport

Disposal

Waste and Spent Nuclear Fuel Management

Safeguards

Questions and Observations of Special Report No 16/2011

• Questions to be answered: • Have the programme actions for decommissioning been designed in accordance with

identified needs and have they been carried out as planned? • Have programme actions to mitigate the consequences of the early closure of the reactors

been designed in accordance with identified needs and have they been carried out as planned so far?

• Have the accountability and governance arrangements been adequate to ensure an effective use of EU funds?

• Observations • Progress achieved in the decommissioning of the reactors

• The identification of decommissioning activities is still in progress • Major infrastructure projects face delays and cost-overruns • The funding shortfall is significant

• Progress achieved in mitigating the effects of the plant’s closure • Inadequate mitigation needs assessment • Broad variety of mitigation activities financed

• Programme accountability and management organisation • Weak accountability for programmes’ performance • Incomplete organisational changes

Slide 12

Conclusions of Special Report No 16/2011

• EU financial assistance has helped Bulgaria, Lithuania and Slovakia to meet their commitments towards the early closure of eight nuclear reactors .

• Reactors are now closed and partly defueled, major preparatory works have been implemented and dismantling works have started.

• However, after more than 10 years of EU assistance, progress has been slow, as many projects still involve preparatory activities.

• Moreover, the situation is rather unclear concerning the needs still to be met as a result of the early closure since no comprehensive needs assessment exist.

• As a result of a relatively loose policy framework , the programmes do not benefit from a comprehensive needs assessments , prioritisation and the setting of specific objectives and results to be achieved.

• Basic data on radioactive waste management inventories ( and their characterisations ) are either missing or have not yet been developed into detailed decommissioning plans.

• Required radioactive waste processing and storage technologies and facilities have not yet been fully designed.

• Responsibilities are diffused. The Commission’s super vision focuses on the budgetary execution and project implementation, rather than on the achievement of the programme objectives as a whole.

• Although the overall cost for the completion of the programmes is unknown, it is clear that there is a significant funding short fall. This puts at risk the completion of the decommissioning.

Slide 13

Recommendations of Special Report No 16/2011

Slide 14

• Recommendation (a) • The Commission should put in place the conditions for an effective, efficient and economical use of

EU funds. To this effect: • It should establish a detailed needs assessment showing the progress of the programmes so

far, the activities still to be performed and an overall financing plan identifying the funding sources from the different stakeholders.

• Before further spending takes place, the Commission should analyse the resources available

and the expected benefits. This should lead in turn to objectives being aligned with the budget made available and to the establishment of meaningful performance indicators, which can subsequently be monitored and reported on as necessary for the programme implementation as a whole.

Recommendation (b) • Should the EU decide, as proposed by the Commission, to provide further financial assistance in

the next multiannual financial framework, this support should be based on an ex ante evaluation of the EU added value of such intervention, identifying the specific activities to be financed through the EU budget, taking account of other funding facilities such as Structural Funds and the conditions for EU disbursements.

Question and Observations of Special Report No 22/2016 1/6 (http://www.eca.europa.eu/en/Pages/DocItem.aspx?did=37685)

• Question to be answered: • Has a progress been made in the implementation of the EU’s nuclear decommissionnig assistance programmes since

2011?

• Some decommissioning progress made since 2011, but critical challenges ahead • Progress made in non-controlled areas, but

• decommissioning of reactor buildings yet to begin and radioactive waste management infrastructure only partially complete

• Nearly all the key decommissioning infrastructure projects have experienced delays • ECA’s assessment of achievement of expected outputs indicating irreversible closure of the three nuclear power plants

as at 31 December 2015:

Slide 15 N.B. Kozloduy, Bulgaria received decommissioning licence for units 3-4 in July 2016

Observations of Special Report No 22/2016 2/6

• Nearly all the key decommissioning infrastructure projects have experienced delays • Lithuania

• interim spent fuel storage facility project (10 years) • the solid waste retrieval treatment and storage facility (9 years)

• Bulgaria • the national disposal facility for low- and intermediate-level radioactive waste (6 years) • plasma melting facility (5 years)

Projects in Turbine hall • Lithuania, Bulgaria and Slovakia

• Dismantling projects well advanced

Slide 16

Projects in Controlled area • Slovakia

• decontaminating the primary circuit, which needs to be completed before the heart of the reactor building can be dismantled, was originally scheduled for completion in 2014 - delayed

• Lithuania • Main cooling circuit Unit1, delayed, Unit 2 , not yet started

Observations of Special Report No 22/2016 3/6

• Progress in constructing infrastructure for managing very low- to intermediate-level waste, 2011 and 2015

Slide 17

2011 2015

Ignalina,

Lithuania

Work on the “buffer storage” for the landfill facility for very low-level waste ongoing.

Buffer storage completed and filled to 80 % of its current capacity.

Construction of the above-surface facility not yet started.

Construction of the above-surface facility not yet started since tendering is delayed due to changes in the technical design.

Near-surface repository for low and medium, short-lived, waste in design phase.

Near-surface repository is still in the design phase and delayed by 1 year.

Solid waste management and storage facility for long-lived medium level waste delayed by 3.5 years.

Solid waste management and storage facility is delayed by 9 years. Operational acceptance planned for 2018. No facility available for storage of reactor dismantling waste, although a related project has begun.

Kozloduy, Bulgaria

Use of existing storage and treatment facilities on site, but additional storage and treatment capacity needed for future decommissioning.

According to an assessment made by the decommissioning licence holder State Enterprise Radioactive Waste Management (SERAW), the capacity of the existing radioactive waste storage facilities should suffice until 2022.

National disposal facility for low- and intermediate-level radioactive waste to be constructed by the end of 2015.

The national disposal facility for low- and intermediate-level radioactive waste, the main missing element, is delayed by 6 years. Expected completion 2021.

Bohunice, Slovakia Use of existing storage and treatment facilities on site. Additional storage and treatment capacity needed for future decommissioning.

Ongoing project to increase the capacity of the national radioactive waste repository for very low-level waste to be finished in 2018.

Observations of Special Report No 22/2016 4/6

• Progress in infrastructure for the interim storage of spent nuclear fuel, 2011 and 2015

Slide 18

2011 2015

Ignalina,

Lithuania

Units could not be defuelled until the interim

storage facility for spent fuel was operational, but

this project was 4 years behind schedule.

Construction of the interim spent fuel storage facility has been

delayed by a further 6 years, putting it 10 years behind

schedule compared with the 2005 Final Decommissioning

Plan. Its completion is a precondition to obtaining a

decommissioning licence.

Kozloduy,

Bulgaria

Significant delays and budget overruns affecting

the design and construction of an interim spent

fuel dry storage facility for storing spent fuel

assemblies in casks.

Take-over certificate was obtained in March 2013 and, by

2015, six loaded casks had been stored out of the 34 planned.

A 10-year licence to operate the storage facility was obtained

on 29 January 2016.

Bohunice,

Slovakia Interim spent fuel wet storage facility available.

Spent fuel from the V1 nuclear power plant is stored in the

interim spent fuel storage facility on site. Its storage capacity

will suffice until 2024 when including spent nuclear fuel from

other plants. Pending a decision on final disposal, there are

plans to build an interim spent fuel dry storage facility.

Observations of Special Report No 22/2016 5/6

• Estimated cost of decommissioning will be at least 5.7 billion euro and double this if the cost of final disposal is included • Total estimated decommissioning cost has increased by 40 % to 5.7 billion euro since 2010 • The total estimated cost would double if the cost of final disposal of high-level waste is included • The Member States, and in particular Lithuania, face financial challenges • The Commission’s assessment of financing and decommissioning plans was inadequate • The EU budget finances the vast majority of costs in all three Member States • Liabilities for future costs are not properly accounted for in the three Member States

Slide 19

• Financing gap in 2011 and 2015 Financing gaps when taking into account

both decommissioning and final disposal

Observations of Special Report No 22/2016 6/6

• Staffing at the time of reactor closure and in 2015 • 1Full operation figure as at 31.12.2004 for Ignalina, as at 31.12.2002 for Kozloduy, and as at 1.4.2006 for Bohunice. • 2Of the staff at Ignalina, 1 377 were working on nuclear decommissioning and 701 on safe maintenance. • 3Figures for Ignalina cover EU support from first unit closure in 2005 until 2016; for Kozloduy, from first unit closure in 2003 until 2017; for

Bohunice, from first unit closure in 2008 until 2016. • Source: ECA, based on figures provided by Member State authorities.

Slide 20

Number of staff EU support granted

(million euro)3 during full operation1 in 2015

Ignalina, Lithuania (2 reactor units) 3 517 2 1272 171

Kozloduy, Bulgaria (4 reactor units) 1 400 650 130

Bohunice, Slovakia (2 reactor units) 1 060 239 45

Total 5 977 3 016 346

Conclusions of Special Report No 22/2016

• The dedicated EU funding programmes for nuclear decommissioning have not created the right incentives for timely and cost-effective decommissioning.

• Since we published our previous report in 2011, some progress has been made in decommissioning the nuclear power plants of Ignalina in Lithuania, Kozloduy in Bulgaria, and Bohunice in Slovakia.

• Key components in the plants’ non-controlled areas have been dismantled. However, nearly all the key decommissioning infrastructure projects have experienced delays, and the critical challenges involved in working in the controlled areas still lie ahead for all three Member States.

• According to all of the national authorities, the progress achieved means that closure is now effectively irreversible. However, the expected outputs by which the Commission assesses progress towards irreversible closure have not yet been fully met at any of the three plants.

• The financing gap in Lithuania has increased since our last audit and now stands at 1.6 billion euro. The estimated cost of decommissioning at the three plants will be at least 5.7 billion euro in total, and 11.4 billion if the cost of final disposal is included.

Some decommissioning progress made since 2011 but critical challenges ahead

• Since 2011, the three Member States have dismantled certain key components in the non-controlled area and, except in the case of Lithuania, advanced in obtaining the relevant licences for starting work in the controlled area. Lithuania has yet to obtain such a licence, the granting of which is now scheduled for 2022, 10 years later than originally planned.

• According to all of the national authorities, the progress achieved means that closure is now effectively irreversible. However, the expected outputs by which the Commission assesses progress towards irreversible closure have not yet been fully met at any of the three plants. The designs for the dismantling of the reactor cores/primary circuits are not yet complete and only minor works in the reactor building have been carried out to date. This means that the critical challenges involved in working in the controlled areas, including the reactor buildings, still lie ahead for all three Member States.

• There has been some progress in putting in place waste management infrastructure, but many key infrastructure projects in the three Member States experienced delays in the 2011-2015 period. The longest delays have been in Lithuania, where the decommissioning end-date has, since 2011, been postponed by a further nine years to 2038.

• Challenges remain in each of the three Member States, such as a reliance on external experts and dealing with first-in-kind technical solutions

• The EU-wide shortage of qualified, experienced engineers poses a risk, particularly in Lithuania.

Slide 21

Recommendations of Special Report No 22/2016 1/3

• Recommendation 1 - Ensure progress in decommissioning The three Member States concerned should: • (a) further improve their project management practices in order to have the necessary waste and

spent fuel management infrastructure in place when planned; • (b) take steps to build up their own technical capacity, so as to achieve a better balance between

in-house and external expertise; • (c) find better ways to exchange best practices and technical knowledge, both among themselves

and with the wider nuclear decommissioning community in the EU and beyond. The Commission should facilitate this in a cost-effective way.

• Recommendation 2 - Solutions for the final disposal of spent nuclear fuel

• (a) The Commission should, together with all relevant EU Member States, explore options for the disposal of spent fuel and high-level waste, including any regional and other EU-based solutions, duly considering safety, security and the cost-effectiveness of the alternatives. The Commission should include a review of this matter in its first report to the European Parliament and the Council on the implementation of the Radioactive Waste Directive.

• (b) The three Member States should, in parallel, progress with their plans for final disposal, in order to establish more complete cost estimates and financing plans for the disposal of spent fuel and radioactive waste, as required by the Radioactive Waste Directive.

Slide 22

Recommendations of Special Report No 22/2016 2/3

• Recommendation 3 - Respecting the polluter pays principle by increasing national financing for 2014-2020 and beyond • The three Member States should recognise their own role in ensuring that the polluter pays

principle is respected, and be prepared to use national funds to cover decommissioning costs, including as well as the cost of final disposal, both in the current financing period and thereafter.

• Recommendation 4 - Increase in national co-financing in the 2014-2020 financing period

• The Commission should seek increases in national co-financing during the 2014-2020 financing period. It should define clearly, for example, in a Commission decision, the “well-founded exceptional” conditions under which projects can be fully financed by the EU under the nuclear decommissioning assistance programmes.

• Recommendation 5 - Discontinue dedicated funding programmes for nuclear decommissioning in Lithuania, Bulgaria and Slovakia after 2020 • Dedicated funding programmes for nuclear decommissioning in Lithuania, Bulgaria and Slovakia

should be discontinued after 2020. If a clear need for the use of EU funds beyond 2020 is established, in one or more of these three Member States, any future EU funding proposed by the Commission and agreed by the legislator should include the right incentives to pursue decommissioning, including by being time-limited and by being based on appropriate levels of Member State co-financing. One way to do this would be to consider widening access to the European Structural and Investment Funds to allow nuclear decommissioning activities to be covered, fulfilling these conditions.

Slide 23

Recommendations of Special Report No 22/2016 3/3

• Recommendation 6 - EU funding only for cost of decommissioning • The Commission should allow EU financing under the nuclear decommissioning assistance

programmes to be used to finance only the costs of staff working fully on decommissioning activities.

• Recommendation 7 - Improving Commission oversight • The Commission should complete its assessment of the ex ante conditionalities.

• Recommendation 8 - Accounting treatment

• The Commission should work together with all relevant Member States so that all future costs associated with nuclear decommissioning and the final disposal of spent fuel are accounted for properly, in a transparent manner, consistent with relevant accounting standards.

Slide 24

Questions/Answers

Thank you for your attention!

Slide 25

Publications

Opinions and reviews Issues of EU legislation and public sector management and audit

Special reports Selected audits on specific budgetary areas or management topics, mainly performance audit

Audit reports and opinions

Annual reports Statement of assurance on compliance of EU budget with rules, and findings on results achieved (also EDFs)

Specific annual reports Financial audit of EU agencies, decentralised bodies and other institutions

Slide 26

Publications

Annual activity reports Yearly overview of the activities and performance of the ECA

Information material Information for citizens about the ECA and its role

ECA and its work

ECA Journal Monthly publication on audit or EU topics of relevance for the ECA and its community

Slide 27

Contact details

First name Surname Job Title firstname.surname@eca.europa.eu

Want to know more about our work:

Visit our website: eca.europa.eu

Follow us on Twitter @EUAuditorsECA

Check our page on LinkedIn and Facebook

Watch our videos on YouTube: EUAuditorsECA

Contact us at: ECA-info@eca.europa.eu

Slide 28